SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 ý    QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
Quarterly Period Ended June 30, 2009
 
 or
 
 o    TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
the transition period from
         
to
 
 Commission
File Number 0-28585
  
 AuraSource,
Inc.
 (Exact
name of registrant as specified in its charter)
 
 
 Nevada
                (State
      or Other Jurisdiction of Incorporation or Organization)
              68-0427395
                (IRS
      Employer Identification No.)
 
 7377
E. Doubletree Ranch Rd. #288
 Scottsdale, AZ
85258
 (Address
of principal executive offices, zip code)
 
 Registrant's
telephone number (including area code): (480)
368-1829
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
 YES ý    
NO o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
 Large
Accelerated Filer o
Accelerated Filer o
Non-accelerated Filer o Smaller reporting
company ý
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No ý
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
 
 Class
              
              Outstanding
      at August 13, 2009Common
      Stock, $.001 par value
              
              21,650,000
 
 
 
  
  
 AURASOURCE,
INC.
 
 
 INDEX
 
 PART
      I
              FINANCIAL
      INFORMATIONITEM
      1.
              CONSOLIDATED
      FINANCIAL STATEMENTS:Consolidated
      Balance Sheets — June 30, 2009 (Unaudited) and March 31,
    2009Consolidated
      Statements of  Operations (Unaudited) — Three months ended June
      30, 2009 and 2008Consolidated
      Statements of Cash Flows (Unaudited) —Three months ended June 30, 2009 and
      2008Notes
      to Consolidated Financial StatementsITEM
      2.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONSITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM
      4.
              CONTROLS
      AND PROCEDURESPART
      II
              OTHER
      INFORMATIONITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM
      6.
              EXHIBITS
 
 
 
   -
2 -
  
 PART I -
FINANCIAL INFORMATION
 
 ITEM I — CONSOLIDATED FINANCIAL
STATEMENTS
 
 AuraSource,
Inc.
 (A
Development Stage Enterprise)
 Consolidated
Balance Sheets
 
 
 June
      30,
              
              
              March
      31,2009
              
              
              2009ASSETS
              
              (Unaudited)Current
      assetsCash
      and cash equivalents
              
              $
              218,455
              
              
              $
              145,436Total
      current assets
              
              
              218,455
              
              
              
              145,436Fixed
      assets, net of accumulated depreciation
              
              
              1,544
              
              
              
              1,716Total
      assets
              
              $
              219,999
              
              
              $
              147,152LIABILITIES
      AND SHAREHOLDERS' EQUITY (DEFICIT)Current
      liabilitiesAccounts
      payable
              
              $
              15,468
              
              
              $
              10,734Accrued interest payable, related party
              
              
              -
              
              
              
              10,447Notes payable, related party
              
              
              -
              
              
              
              253,965Total
      current liabilities
              
              
              15,468
              
              
              
              275,146Commitments
      and contingenciesShareholders'
      equity (deficit)Preferred
      stock, 10,000 shares authorized, no shares issued andoutstanding,
      no rights or privileges designated
              
              
              -
              
              
              
              -Common
      stock, $.001 par value, 150,000,000 shares authorized, 21,650,000 and
      20,350,000 shares issued and outstanding at June 30, 2009 and March 31,
      2009, respectively.
              
              
              21,650
              
              
              
              20,350Additional
      paid in capital
              
              
              1,524,866
              
              
              
              476,182Accumulated
      deficit
              
              
              (1,341,985
              )
              
              
              (624,526
              )Total
      shareholders' equity (deficit)
              
              
              204,531
              
              
              
              (127,994
              )Total
      liabilities and shareholders' equity
              
              $
              219,999
              
              
              $
              147,152The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
  -
3 -
  AuraSource,
Inc.
 (A
Development Stage Enterprise)
 Consolidated
Statements of Operations
 For
the Three Months Ended June 30, 2009 and 2008
 (Unaudited)
  
 For
      the three months ended June 30,
                
                
                From
      March 15, 1990 (Inception to June 30,2009
                
                
                2008
                
                
                2009Revenue,
      net
                
                $
                -
                
                
                $
                -
                
                
                $
                -Cost
      of revenue
                
                
                -
                
                
                
                -
                
                
                
                -Gross
      profit
                
                
                -
                
                
                
                -
                
                
                
                -Operating
      expenses:General
      & administrative expenses
                
                
                712,448
                
                
                
                10,410
                
                
                
                1,339,126Total
      operating expenses
                
                
                712,448
                
                
                
                10,410
                
                
                
                1,339,126Loss
      from operations
                
                
                (712,448
                )
                
                
                (10,410
                )
                
                
                (1,339,126
                )Other
      income (expenses):
                
                
                (5,011
                )
                
                
                (7,762
                )
                
                
                (2,859
                )Net
      loss applicable to common stockholders
                
                $
                (717,459
                )
                
                $
                (18,172
                )
                
                $
                (1,341,985
                )Basic
      & Dilutive Loss per share
                
                $
                (0.03
                )
                
                $
                (0.03
                )Weighted
      average shares outstanding
                
                
                20,826,667
                
                
                
                573,500
 
 
 *Weighted
average number of shares used to compute basic and diluted loss per share is the
same since the effect of dilutive securities is anti-dilutive.
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  -
4 -
  AuraSource,
Inc.
 (A
Development Stage Enterprise)
 Consolidated
Statements of Cash Flows
 For
the Three Months Ended June 30, 2009 and 2008
 (Unaudited)
      
 2009
              
              
              2008
              
              
              Cumulative
      from
                March
      15, 1990
                (Inception)
      to
                June
      30, 2009Cash
      flows from operating activities:Net
      loss
              
              $
              (717,459
              )
              
              $
              (18,172
              )
              
              
              (932,323
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      expense
              
              
              172
              
              
              
              -
              
              
              
              514Stock
      based compensation
              
              
              663,406
              
              
              
              -
              
              
              
              679,904Changes
      in operating assets and liabilities:Accounts
      payable and accrued expenses
              
              
              4,734
              
              
              
              -
              
              
              
              15,469Interest
      payable
              
              
              5,009
              
              
              
              -
              
              
              
              (9,359
              )Discontinued
      operations
              
              
              -
              
              
              
              7,763
              
              
              
              (307,295
              )Net
      cash used in operating activities
              
              
              (44,138
              )
              
              
              (10,409
              )
              
              
              (554,090
              )Cash
      flows from investing activities :Advances
      from stockholders, net
              
              
              -
              
              
              
              -
              
              
              
              22,725Capital
      equipment purchases
              
              
              -
              
              
              
              -
              
              
              
              (2,058
              )Sale
      of assets to MongSource net of cash on hand
              
              
              (88,567
              )
              
              
              -
              
              
              
              (88,567
              )Net
      cash used in investing activities
              
              
              (88,567
              )
              
              
              -
              
              
              
              (67,900
              )Cash
      flows from financial activitiesNet
      proceeds from issuance of common stock
              
              
              -
              
              
              
              100,000
              
              
              
              543,256Offering
      costs
              
              
              -
              
              
              
              7,500
              
              
              
              7,500Proceeds
      from increase of note payable
              
              
              205,724
              
              
              
              -
              
              
              
              459,689Repayment
      of debt
              
              
              -
              
              
              
              (105,000
              )
              
              
              (170,000
              )Net
      cash provided by financial activities
              
              
              205,724
              
              
              
              2,500
              
              
              
              840,445Net
      change in cash and cash equivalents
              
              
              73,019
              
              
              
              (7,909
              )
              
              
              218,455Cash
      and cash equivalents - beginning balance
              
              
              145,436
              
              
              
              8,686
              
              
              
              -Cash
      and cash equivalents - ending balance
              
              $
              218,455
              
              
              $
              777
              
              
              
              218,455Supplemental
      disclosure of cash flows information:Cash
      received/(paid) during the period for:Interest
              
              $
              -
              
              
              $
              -Income
      taxes
              
              $
              -
              
              
              $
              -The
      accompanying notes are an integral part of these consolidated financial
      statements.
                
                NonCash
      Transaction – Cash flows from operating, investing and financial
      activities have been impacted from the following noncash
      transaction. On June 11, 2009, the Company sold mineral rights to a
      related party for the cancellation of a note payable and related interest
      payable totaling $475,146.
  -
5 -
  AURASOURCE,
INC.
 (A
Development Stage Enterprise)
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
 (UNAUDITED)
 
 NOTE
1.    SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
 
 Current
Operations and Background— AuraSource, a Nevada corporation,
(“AuraSource” or the “Company”) focuses on clean energy technology
development.  AuraSource developed the AuraCoal process, our patent
pending technology to reduce SO2 and ash from coal
pre-combustion.  AuraSource will invest in AuraCoal plants worldwide
and market and distribute AuraFuel, a coal based clean industrial fuel produced
by a proprietary new generation of Clean-Coal technology - AuraCoal that reduces
energy costs and all but eliminates harmful emissions.
 
 AuraSource
plans to form a wholly owned foreign entity in China to acquire Hydrocarbon
Clean Fuel (“HCF”) technology, performing research and development related to
HCF technology and products based on this technology, licensing HCF technology
to third parties and selling services and products derived from this
technology.
 
 Hydrocarbon Clean Fuel (HCF)
Technology
 
 We
believe our HCF technology, AuraCoaltm, will
be the next generation of hydrocarbon clean fuel technology. It involves
grinding coal into very fine particles, mixing it with water and selected
chemicals to make a slurry mixture and using a proprietary biological treatment
of the coal slurry mixture to reduce heavy minerals, such as
sulfur.  We believe such slurry mixture, AuraFueltm, will
have sufficient fluidity to move through pipelines, process delivery piping and
burner injection nozzles. Our goal is to demonstrate to power plants and similar
users that our HCF technology can convert their plants to use the technology at
a lower cost than any current alternative.  Given sufficient capital
and development of our HCF technology, we plan to market it to plants in China
and the United States with the objective of having a beta demonstration site in
each country.
 
 Given
sufficient capital, development and protection of our HCF technology, among
other factors, AuraSource plans to utilize the HCF technology as
follows:
 
 ·
              license
      HCF technology to international clients in applicable industries, such as
      coal producers and power plants.
 
 ·
              develop
      strategic partnerships to deliver consulting services with respect to
      design, engineering, procurement and construction for HCF
      applications.
 
 ·
              enter
      into joint ventures with coal producers to supply HCF treated coal to
      power plants.
 
 ·
              process
      coal using HCF technology and sell such coal to end users at a marked-up
      price.
 
 ·
              assist
      customers to convert their plants to HCF rather than oil, gas or other
      natural resources in order to save energy
costs.
 
 ·
              establish
      centers for processing coal with our HCF technology to supply power plants
      and other customers.
 
 
  -
6 -
  AuraCoaltm Clean
Coal Technology
 
 AuraCoaltm is a
new generation of HCF technology. With the adoption of our proprietary
AuraCoaltm Clean
Coal technology, we believe we will be able to convert old coal systems into
power generating systems that produce emissions containing only trace amounts of
sulfur and ash.  We believe AuraCoaltm
technology can:
  ·
              reduce
      harmful emissions and energy costs;
  ·
              reduce
      and/or eliminate the need for
scrubbers;
  ·
              reduce
      carbon (CO2) emissions by up to 33% before implementation of additional
      carbon recapture technology;
  ·
              reduce
      a power plant’s need for related precipitators and/or sulfur acceptors;
      and
  ·
              enable
      a power plant to effectively manage its carbon
  emissions.
  An
existing gas or oil power plant can be converted to use AuraCoaltm
technology with minimal engineering processes.  Given sufficient
capital, our goal is to start a pilot plant and begin seven plant conversions in
the third and fourth calendar quarters of 2009.
  AuraFueltm Liquid
Fuel
 
 AuraFueltm is the
resulting coal based, clean industrial fuel produced by AuraCoaltm
technology.  We believe AuraFueltm will
burn cleaner and more efficiently than its predecessors and can be delivered via
pipeline in a non-volatile state. We believe AuraFueltm:
  ·
              has
      excellent fuel economy, good liquidity and stability, is easily loaded and
      unloaded, and can be stored and transported by pipeline or tanker without
      precipitation;
  ·
              is
      conducive to pumping over long-distance pipelines, transport by railway,
      truck tankers and maritime
shipping;
  ·
              has
      excellent atomization performance, can be stably fired and directly
      combusted.  AuraFueltm
      may be combusted in industrial boilers, industrial kilns and power
      generation boilers making it a substitute for conventional oil and
      coal;
  ·
              produces
      virtually no pollution, therefore allowing the use of coal as an energy
      source at a time of environmental pollution concern and
      conservation.  AuraFueltm
      yields almost no coal ash by virtue of its high burning efficiency (99%)
      and can significantly reduce CO2 emissions; and·
              is
      an attractive alternative to oil or natural
gas.
 
 There can
be no assurance we will be able to carry out our development plans for our HCF
technology, including AuraCoaltmand
AuraFueltm.
 
 Going Concern— The accompanying consolidated financial statements have been prepared
assuming we will continue as a going concern.  We have suffered
recurring losses from operations since our inception and have an accumulated
deficit of $1,341,985 at June 30, 2009.  The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classifications of
liabilities that might be necessary should we be unable to continue our
existence.  The recovery of our assets is dependent upon continued
operations of the Company.
  -
7 -
  In
addition, our recovery is dependent upon future events, the outcome of which is
undetermined.  We intend to continue to attempt to raise additional
capital, but there can be no certainty that such efforts will be
successful.
 
 Basis of
Presentation and Principles of Consolidation — The accompanying
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (“US
GAAP”).
 
 The
unaudited consolidated financial statements have been prepared by us pursuant to
the rules and regulations of the Securities and Exchange Commission (“SEC”). The
information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of management,
necessary to fairly present the operating results for the respective periods.
Certain information and footnote disclosures normally present in annual
consolidated financial statements prepared in accordance with US GAAP have been
omitted pursuant to such rules and regulations. These consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes for the year ended March 31, 2009 included in our
Annual Report on Form 10-K. The results of the three months ended June 30, 2009
are not necessarily indicative of the results to be expected for the full year
ending March 31, 2010.
 
 Use of Estimates— The preparation of consolidated financial statements in conformity with
US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
 
 Cash and Cash
Equivalents— We consider investments with original maturities of
90 days or less to be cash equivalents.
 
 Income
Taxes —The Company records income taxes in accordance with the provisions
of Statement of Financial Accounting Standards (“SFAS”) No. 109,
“Accounting for Income Taxes.”  The standard requires, among other
provisions, an asset and liability approach to recognize deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and tax basis of
assets and liabilities.  Valuation allowances are provided if, based
upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
 
 Stock-Based
Compensation— The Company uses SFAS No. 123 (revised 2004), “Share-Based
Payment,” (“SFAS 123(R)”) which was issued in December 2004. SFAS 123(R) revises
SFAS No. 123, “Accounting for Stock Based Compensation,” and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related
interpretations. SFAS 123(R) requires recognition of the cost of employee
services received in exchange for an award of equity instruments in the
consolidated financial statements over the period the employee is required to
perform the services in exchange for the award. SFAS 123(R) also requires
measurement of the cost of employee services received in exchange for an award.
SFAS 123(R) also amends SFAS No. 95, “Statement of Cash Flows,” to require the
excess tax benefits be reported as financing cash inflows, rather than as a
reduction of taxes paid, which is included within operating cash
flows.
 
 SFAS
123(R) provides that income tax effects of share-based payments are recognized
in the consolidated financial statements for those awards that will normally
result in tax deduction under existing law. Under current U.S. federal tax law,
the Company would receive a compensation expense deduction related to
non-qualified stock options only when those options are exercised and vested
shares are received. Accordingly, the financial statement recognition of
compensation cost for non-qualified stock options creates a deductible temporary
difference which results in a deferred tax asset and a corresponding deferred
tax benefit in the income statement. The Company does not recognize a tax
benefit for compensation expense related to incentive stock options unless the
underlying shares are disposed in a disqualifying disposition.
  -
8 -
  
 Net Income (Loss)
Per Share — The Company computes net loss per share in accordance with
SFAS No. 128, “Earnings per Share,” and SEC Staff Accounting Bulletin No. 98
(“SAB 98”). Under the provisions of SFAS No. 128 and SAB 98, basic and diluted
net loss per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of common
stock outstanding during the period.  Common equivalent shares related to
stock options and warrants were excluded from the computation of basic and
diluted earnings per share, for the three months ended June 30, 2008 and 2009
because their effect is anti-dilutive.
 
 Concentration of
Credit Risk — Financial instruments that potentially subject the Company
to a concentration of credit risk consist of cash.  The Company
maintains its cash with high credit quality financial institutions; at times,
such balances with any one financial institution may exceed FDIC insured
limits.
 
 Financial
Instruments — Our financial instruments consist of cash, accounts
payable, and notes payable.  The carrying values of cash, accounts
payable, and notes payable are representative of their fair values due to their
short-term maturities.
 
 Fair Value of
Financial Instruments— We adopted SFAS 157
effective January 1, 2008 for financial assets and liabilities measured on
a recurring basis. On February 6, 2008, the FASB deferred the effective
date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. SFAS 157 defines fair value, establishes a
framework for measuring fair value and generally accepted accounting principles
and expands disclosures about fair value measurements. This standard applies in
situations where other accounting pronouncements either permit or require fair
value measurements. SFAS 157 does not require any new fair value
measurements.
  Fair
value is defined in SFAS 157 as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurements are to be
considered from the perspective of a market participant that holds the asset or
owes the liability. SFAS 157 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value.
  The
standard describes three levels of inputs that may be used to measure fair
value:
  Level 1:
              
              Quoted
      prices in active markets for identical or similar assets and
      liabilities.Level 2:
              
              Quoted
      prices for identical or similar assets and liabilities in markets that are
      not active or observable inputs other than quoted prices in active markets
      for identical or similar assets and liabilities.Level 3:
              
              Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities.
  The
carrying amount of the Company’s financial assets and liabilities, including
cash and accrued expenses approximate fair value, without being discounted, due
to the short-term maturities during which these amounts are
outstanding.
  The
Company adopted SFAS 159 effective March 1, 2008. This statement provides
companies with an option to report selected financial assets and liabilities at
fair value. The Company did not elect the fair value option for any of such
eligible financial assets or financial liabilities as of June 30,
2009.
 
  -
9 -
  Significant
Recently Issued Accounting Pronouncements—In April 2009, the
FASB issued FSP FAS 107-1/APB 28-1 (“FSP 107-1”), which is entitled “Interim
Disclosures about Fair Value of Financial Instruments.” This pronouncement
amended SFAS No 107, Disclosures about Fair Value of Financial Instruments, to
require disclosure of the carrying amount and the fair value of all financial
instruments for interim reporting periods and annual financial statements of
publicly traded companies (even if the financial instrument is not recognized in
the balance sheet), including the methods and significant assumptions used to
estimate the fair values and any changes in such methods and assumptions. FSP
107-1 also amended APB Opinion No. 28, Interim Financial Reporting, to
require disclosures in summarized financial information at interim reporting
periods. FSP 107-1 is effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ended after
March 15, 2009 if a company also elects to early adopt FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Indentifying Transactions That Are
Not Orderly, and FSP FAS 115-2/FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. We do not expect that the adoption of FSP FAS
107-1 and APB 28-1 will have a material impact on our financial position,
results of operations or cash flows.
 
 In April
2009, the FASB also issued FSP FAS 157-4, which generally applies to all assets
and liabilities within the scope of any accounting pronouncements that require
or permit fair value measurements. This pronouncement, which does not change
SFAS No. 157’s guidance regarding Level 1 inputs, requires the entity to
(i) evaluate certain factors to determine whether there has been a
significant decrease in the volume and level of activity for the asset or
liability when compared with normal market activity, (ii) consider whether
the preceding indicates that transactions or quoted prices are not determinative
of fair value and, if so, whether a significant adjustment thereof is necessary
to estimate fair value in accordance with SFAS No. 157, and
(iii) ignore the intent to hold the asset or liability when estimating fair
value. FSP FAS 157-4 also provides guidance to consider in determining whether a
transaction is orderly (or not orderly) when there has been a significant
decrease in the volume and level of activity for the asset or liability, based
on the weight of available evidence. This pronouncement is effective for interim
and annual reporting periods ending after June 15, 2009, and shall be
applied prospectively. Early adoption of FSP FAS 157-4 also requires early
adoption of the pronouncement described in the following paragraph. However,
early adoption for periods ended before March 15, 2009 is not permitted. We
have not yet evaluated the impact, if any, the adoption of this Statement will
have on our financial position, results of operations or cash
flows.
  The
Sarbanes-Oxley Act of 2002 (“the Act”) introduced new requirements regarding
corporate governance and financial reporting. Among the many requirements of the
Act is for management to annually assess and report on the effectiveness of its
internal control over financial reporting under Section 404(a) and for its
registered public accountant to attest to this report under Section 404(b).
The SEC has modified the effective date and adoption requirements of
Section 404(a) and Section 404(b) implementation for non-accelerated
filers multiple times, such that we were first required to issue our management
report on internal control over financial reporting in our annual report on Form
10-K for the fiscal year ending March 31, 2009. Based on current SEC
requirements, we will be required to have our auditor attest to internal
controls over financial reporting in our fiscal year ending March 31, 2010.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the United States Securities and Exchange Commission did not or
are not believed by management to have a material impact on the Company’s
present or future financial statements.
 
   -
10 -
  In May
2009, the FASB issued SFAS No. 165 entitled "Subsequent Events." 
Transactions and events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued (which are
generally referred to as subsequent events) that are addressed by other GAAP,
such as those governed by FASB Interpretation No. 48, SFAS No. 5 and SFAS No.
128, are not within the scope of SFAS No. 165.  Companies are now required
to disclose the date through which subsequent events have been evaluated by
management.  Public entities (as defined) must conduct the evaluation as of
the date the financial statements are issued, and provide disclosure that such
date was used for this evaluation.  SFAS No. 165 provides that financial
statements are considered "issued" when they are widely distributed for general
use and reliance in a form and format that complies with GAAP.  SFAS No.
165 is effective for interim or annual periods ending after June 15, 2009, and
must be applied prospectively. The adoption of SFAS No. 165 during the quarter
ended June 30, 2009 did not have a significant effect on the Company's
consolidated financial statements as of that date or for the quarter or
year-to-date period then ended.
 
 In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—A
Replacement of FASB Statement No. 162 (“SFAS 168”), which
established the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied in the
preparation of financial statements in conformity with generally accepted
accounting principles. SFAS 168 explicitly recognizes rules and interpretative
releases of the Securities and Exchange Commission (“SEC”) under federal
securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become
effective in the third quarter of 2009 and will not have a material impact on
the Company’s results of operations, financial position or
liquidity.
 
 NOTE
2 – NOTE PAYABLE
 
 On July
8, 2008, all debts and accrued interest were satisfied with C.W. Gilluly and
Affinity Financial Group, Inc. (“AFG”).
 
 On July
11, 2008, we entered into a Revolving Promissory Note (the “Note”) with
Mongsource USA, LLC, the majority stockholder of the Company.  
Through June 11, 2009, Mongsource USA, LLC had advanced us approximately
$475,000.  Additionally, on September 6, 2008, we entered into an
Exploration Licenses Transfer Agreement, with Mongsource USA, LLC. , under which
Mongsource USA agreed to transfer to the Company three mineral exploration
licenses in Mongolia.
 
 On June
11, 2009, we entered into an agreement with MongSource USA, LLC where by we
transferred all rights and ownership interests in our assets relating to the
exploration and development of mineral resources which includes all assets of
AuraSourse LLC, a Mongolian subsidiary, in exchange for the forgiveness of the
Note and all amounts due under the Note.  We recorded a capital
contribution of $386,578 to additional paid in capital as of the result of this
agreement.
 
 NOTE
3 – DISCONTINUED OPERATIONS
 
 As explained in Note 2, on June 11,
2009, we entered into an agreement with MongSource USA, LLC where by we
transferred all rights and ownership interests in our assets relating to the
exploration and development of mineral resources which includes all assets of
AuraSourse LLC, a Mongolian subsidiary, in exchange for the forgiveness of the
Note and all amounts due under the Note.  We recorded a capital
contribution of $386,578 to additional paid in capital as of the result of this
agreement.
 
  -
11 -
  NOTE
4 - CONCENTRATION OF CREDIT RISK
 
 We maintain our cash balances in various
financial institutions that from time to time exceed amounts insured by the
Federal Deposit Insurance Corporation (up to $250,000, per financial institution
as of June 30, 2009). As of June 30, 2009, our deposits did not exceed insured
amounts.  We have not experienced any losses in such accounts and we
believe we are not exposed to any significant credit risk on
cash.
 
 On May 8, 2009, MongSource USA LLC on
behalf of AuraSource, Inc. transferred $200,000 to Timeway International Ltd. in
Beijing, China in order to hold in trust for
AuraSource.   Timeway International Ltd. is controlled by our
CEO, Philip Liu.  Timeway International Ltd. agrees to hold these
funds in trust at Bank of China and use for AuraSource business acitivities in
China.
 
 NOTE
5 – STOCK ISSUANCE
 
 On May
28, 2009, the board of directors granted to Mr. Liu 1,000,000 restricted shares
for his services from July 8, 2008 until May 31, 2009.   During such
time, Mr. Liu received no other compensation. Additionally, the board of
directors granted Mr. Liu, Mr. Kohler and Mr. Stoppenhagen 100,000 shares of
restricted stock which vests the earlier of two years or termination from the
board.  During the three months ended June 30, 2009, the Company
recorded stock compensation arising from the grants of $650,000.
 
 NOTE
6 - STOCK OPTIONS
 
 In
January 2009, we granted 60,000 options to purchase shares of our common stock
at an exercise price of $3.50 to our board of directors. The options vest
quarterly starting January 1, 2009 and have an expiration period of 10
years.  We will record compensation expense in the quarters in which the
options vest.  The Company has assumed all stock options issued during
the quarter will vest.   Though these expenses will result in a
deferred tax benefit, we have a full valuation allowance against the deferred
tax benefit.
 
 The
Company adopted the detailed method provided in SFAS No. 123(R) for calculating
the beginning balance of the additional paid-in capital pool (“APIC pool”)
related to the tax effects of employee stock-based compensation, and to
determine the subsequent impact on the APIC pool and Consolidated Statements of
Cash Flows of the income tax effects of employee stock-based compensation awards
that are outstanding upon the adoption of SFAS No. 123(R).
 
 The fair
value of each stock option granted is estimated on the grant date using the
Black-Scholes option pricing model.  The Black-Scholes option pricing
model has assumptions for risk free interest rates, dividends, stock volatility
and expected life of an option grant.  The risk free interest rate is
based upon market yields for United States Treasury debt securities at a 7-year
constant maturity.  Dividend rates are based on the Company’s dividend
history.  The stock volatility factor is based on the last 60 days of
market prices prior to the grant date.  The expected life of an option
grant is based on management’s estimate.  The fair value of each
option grant, as calculated by the Black-Scholes method, is recognized as
compensation expense on a straight-line basis over the vesting period of each
stock option award.
 
 The
following assumptions were used to determine the fair value of stock options
granted using the Black-Scholes option-pricing model:
  2009Dividend
      yield
              
              
              0.0
              %Volatility
              
              
              25
              %Average
      expected option life
              
              5.00
      yearsRisk-free
      interest rate
              
              
              1.76
              %
   -
12 -
  The
following table summarizes activity in the Company's stock option grants for the
three months ending June 30, 2009:
  Number
      of
                Shares
              
              
              Weighted
      Average Price Per ShareBalance
      at March 31, 2008
              
              
              —
              
              
              $
              —Granted
              
              
              60,000
              
              
              
              3.50Balance
      at March 31, 2009
              
              
              60,000
              
              
              
              3.50Balance
      at June 30, 2009
              
              
              60,000
              
              
              $
              3.50
  The
following summarizes pricing and term information for options issued to
employees and directors which are outstanding as of June 30, 2009:
 
 Options
      Outstanding
              
              Options
      ExercisableRange
      of Exercise Prices
              
              Number
      Outstanding at June 30, 2009
              
              Weighted
      Average Remaining Contractual
                Life
              
              Weighted
      Average Exercise Price
              
              Number
      Exercisable at June 30, 2009
              
              Weighted
      Average Exercise Price$3.50
              
              
              60,000
              
              
              9.5
              
              
              $3.50
              
              
              30,000
              
              
              $3.50
  NOTE
7 - EARNINGS PER SHARE
 
 The
following table sets forth common stock equivalents (potential common stock) for
the three months ended June 30, 2009 and 2008 that are not included in the loss
per share calculation above because their effect would be anti-dilutive for the
periods indicated:
 
 Three
      Months Ended June 30,2009
              
              
              2008Weighted
      average common stock equivalents:Non-Plan
      Stock Options
              
              
              60,000
              
              
              
              —
 
 
 NOTE
8 – RELATED PARTY TRANSACTIONS
  On July
11, 2008, we entered into a Revolving Promissory Note, attached hereto as
Exhibit C (the “Note”), with Mongsource, our majority stockholder. Under the
terms of the Note, Mongsource agreed to advance to the Company, from time to
time and upon request of the Company, amounts up to $500,000 during the
commitment period, commencing July 11, 2008 and expiring June 30, 2009 (the
“Expiration Date”). The Note accrues interest at 10%, compounded annually. All
advances made under the Note and all accrued and unpaid interest thereon will
become due and payable on the Expiration Date. The Note includes customary
default provisions and provides that all obligations under the Note will
accelerate and become immediately due and payable upon the occurrence of an
event of default, including default in payment, breach by the Company of any
material provisions of the Note, or the commencement and continuation of a
bankruptcy proceeding. The Note provides that upon the occurrence of an event of
default, Mongsource will hold a first credit position on the entire amount owed
on the Note, including the all unpaid principal and interest and interest will
continue to accrue after the event of default at 10% or the legal rate of
interest, whichever is lower.
  -
13 -
  
 In
December 2008, we entered into an agreement with a firm affiliated with Mr. John
P. Boesel, III, who is a Senior Vice President and Branch Manager of Source
Capital Group, under which this firm will be entitled to receive compensation as
our placement agent in connection with certain financing
transactions.  Mr. Boesel is also a founding investor and director of
Mongsource BVI and a member, manager and founding investor of
Mongsource.  Under the agreement, the placement agent will be entitled
to receive a commission of 10% and an unaccountable expense allowance of 3% of
the proceeds generated in the transactions described in the agreement. In
addition, the agreement provides that the third party will be reimbursed up to
$30,000 for certain expenses.  The placement agent will also receive a
warrant to purchase shares of our common stock based on the proceeds generated
in the financing transaction.  Mr. Boesel will indirectly benefit from
these transactions through his affiliation with the placement
agent.
 
 On May 8,
2009, MongSource USA LLC on behalf of AuraSource, Inc. transferred $200,000 to
Timeway International Ltd. in Beijing, China in order to hold in trust for
AuraSource.   Timeway International Ltd. is controlled by our
CEO, Philip Liu.  This account is not insured and we believe is
exposed to significant credit risk on cash. Timeway International Ltd. agrees to
hold these funds in trust at Bank of China until such time that AuraSource sets
up operations in China.
 
 On June
11, 2009, we entered into an agreement with MongSource USA, LLC where by we
transferred all rights and ownership interests in our assets relating to the
exploration and development of mineral resources which includes all assets of
AuraSourse LLC, a Mongolian subsidiary, in exchange for the forgiveness of the
Note and all amounts due under the Note. We recorded a capital contribution of
$386,578 to additional paid in capital as of the result of this
agreement.
   -
14 -
  ITEM
2 .  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 The
information contained in this Form 10-Q is intended to update the information
contained in our Annual Report on Form 10-K for the year ended March 31, 2009
and presumes that readers have access to, and will have read, the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
other information contained in such Form 10-K.  The following
discussion and analysis also should be read together with our consolidated
financial statements and the notes to the consolidated financial statements
included elsewhere in this Form 10-Q.
 
 The
following discussion contains certain statements that may be deemed
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995.  Such statements appear in a number of
places in this Report, including, without limitation, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”  These
statements are not guarantees of future performance and involve risks,
uncertainties and requirements that are difficult to predict or are beyond our
control.  Forward-looking statements speak only as of the date of this
quarterly report. You should not put undue reliance on any forward-looking
statements.  We strongly encourage investors to carefully read the
factors described in our Annual Report on Form 10-K for the year ended March 31,
2009 in the section entitled “Risk Factors” for a description of certain risks
that could, among other things, cause actual results to differ from these
forward-looking statements. We assume no responsibility to update the
forward-looking statements contained in this quarterly report on Form 10-Q. The
following should also be read in conjunction with the unaudited consolidated
financial statements and notes thereto that appear elsewhere in this
report.
 
 Overview
 
 AuraSource,
a Nevada corporation, focuses on clean energy technology
development.  AuraSource developed the AuraCoal process, our patent
pending technology to reduce SO2 and ash from coal
pre-combustion.  AuraSource will invest in AuraCoal plants worldwide
and market and distribute AuraFuel, a coal based clean industrial fuel produced
by a proprietary new generation of Clean-Coal technology - AuraCoal that reduces
energy costs and all but eliminates harmful emissions.
 
 AuraSource
plans to form a wholly owned foreign entity in China to acquire HCF technology,
performing research and development related to HCF technology and products based
on this technology.  We expect our revenue to come from licensing HCF
technology to third parties and selling services and products derived from this
technology.
 
 We intend
to pursue the following core elements of our business strategy:
 
 ·
              license the HCF technology to international clients in applicable
      industries, such as coal producers and power
  plants.
 
 ·
              develop strategic partnerships to deliver consulting services with respect
      to design, engineering, procurement and construction for HCF
      applications.
 
 ·
              enter into joint ventures with coal producers to supply HCF treated coal
      to power plants.
 
 ·
              process coal using the HCF technology and sell such coal to end users at a
      marked-up price.
 
 ·
              assist customers to convert their plants to HCF rather than oil, gas or
      other natural resources in order to save energy
  costs.
 
 ·
              establish centers for processing the coal with its HCF technology to
      supply power plants and other
customers.
 
  -
15 -
  Our
ability to pursue this strategy is subject to the availability of additional
capital and further development of our HCF technology.  We will also
need to finance the cost of pursuing a strategy to effectively protect our
intellectual property rights in the United States and abroad where we intend to
market our technology and products.
 
 Critical Accounting Policies
and Estimates
 
 The
preparation of our consolidated financial statements in conformity with US GAAP
requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amount of expenses during the reporting period. On an ongoing basis, we
evaluate our estimates which are based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances.
The result of these evaluations forms the basis for making judgments about the
carrying values of assets and liabilities and the reported amount of expenses
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions. The following accounting policies
require significant management judgments and estimates:
 
 We
account for our business acquisitions under the purchase method of accounting in
accordance with SFAS 141(R), "Business Combinations." The total cost of
acquisitions is allocated to the underlying net assets, based on their
respective estimated fair values. The excess of the purchase price over the
estimated fair value of the tangible net assets acquired is recorded as
intangibles. Determining the fair value of assets acquired and liabilities
assumed requires management's judgment and often involves the use of significant
estimates and assumptions, including assumptions with respect to future cash
inflows and outflows, discount rates, asset lives, and market multiples, among
other items.
 
 We assess
the potential impairment of long-lived assets and identifiable intangibles using
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
which states that a long-lived asset should be tested for recoverability
whenever events or changes in circumstances indicate that the carrying amount of
the long-lived asset exceeds its fair value. An impairment loss is recognized
only if the carrying amount of the long-lived asset exceeds its fair value and
is not recoverable.
 
 We base
out estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no assurance that
actual results will not differ from these estimates.
 
 Results
of Operations
 
 For the Three Months Ended
June 30, 2009 and 2008
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative expenses were $712,448 and $10,410 for the three
months ended June 30, 2009 and 2008, respectively.  The increase in
expense was due to the commencement of operations and $663,407 from stock based
compensation.
 
 Interest
Income, Interest Expense and Other
 
 Interest
expense and other was $5,011 and $7,762 for the quarters ended June 30, 2009 and
2008, respectively.
 
  -
16 -
  Liquidity and Capital
Resources
 
 Net cash
used in operating activities was $44,138 and $10,409 in the three months ended
June 30, 2009 and 2008, respectively.  The increase was primarily due
to the commencement of operations offset by the stock based
compensation.
 
 Net cash
used in investing activities was $88,567 and zero in the three months ended June
30, 2009 and 2008, respectively.  The increase was due to the
transferring of all rights and ownership interests in assets relating to the
exploration and development of mineral resources to Mongsource.
 
 Net cash
provided by financing activities was $205,724 and $2,500 in the three months
ended June 30, 2009 and 2008, respectively.  The difference of
$203,224 in cash provided by financing activities was primarily due to proceeds
from increase of note payable in the three months ended June 30, 2009 off set by
the proceeds from committed common stock of $100,000 and the repayment of debt
of $105,000 in the three months ended June 30, 2008.
 
 On July
11, 2008, we entered into the Note with Mongsource USA the majority stockholder
of the Company.  Under the terms of the Note, Mongsource USA agreed to
advance to the Company, from time to time and at the request of the Company,
amounts up to an aggregate of $500,000 until March 31, 2009.  All
advances shall be paid on or before June 30, 2009 and interest shall accrue from
the date of any advances on any principal amount withdrawn, and on accrued and
unpaid interest thereon, at the rate 10%, compounded annually. On June 11, 2009,
we entered into an agreement with MongSource USA, LLC where by we transferred
all rights and ownership interests in our assets relating to the exploration and
development of mineral resources which includes all assets of AuraSourse LLC, a
Mongolian subsidiary, in exchange for the forgiveness of the Note and all
amounts due under the Note.
 
 On March
9, 2009, we sold 50,000 shares of our common stock for $1.00 per
share.
 
 The
Company suffered recurring losses from operations and has an accumulated deficit
of $1,341,985 at June 30, 2009.  Currently, we have not generated any
revenues. The Company is seeking various forms of financing.  In the
event the Company uses all of its cash resources, Mongsource has indicated the
willingness to loan the Company funds at the prevailing market rate until such
business combination is consummated.  To the extent Mongsource can not
or is unable to fund us or we are unable to come up with alternative financing,
we will need to cease operations.
 
 Inflation and
Seasonality
 
 Inflation
has not been material to us during the past five years. Seasonality has not been
material to us.
 
 Recent Accounting
Pronouncements
 
  Please
see Item 1 Notes to Unaudited Financial Statements, Note 1, Significant
Recent Accounting Pronouncements.
 
 Off-Balance
Sheet Arrangements-  We have no off-balance sheet
arrangements.
 
  -
17 -
  ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
 As a “smaller reporting company” as
defined by Rule 229.10(f)(1), we are not required to provide the information
required by this Item 3.
  ITEM
4 - CONTROLS AND PROCEDURES
 
 EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES.   Our management, with the participation of our
president and our chief financial officer, carried out an evaluation of the
effectiveness of our "disclosure controls and procedures" (as defined in
the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e)
and 15-d-15(e)) as of the end of the period covered by this report (the
"Evaluation Date"). Based upon that evaluation, our President and our
Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under
the Exchange Act (i) is recorded, processed, summarized and reported,
within the time periods specified in the SEC's rules and forms and (ii) is
accumulated and communicated to our management, including our President and
our Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
  CHANGES IN INTERNAL CONTROL OVER
FINANCIAL REPORTING.   There were no changes in our internal
controls over financial reporting that occurred during the quarter ended June
30, 2009 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting. We believe that a
control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within any company have been
detected.
 
 PART II - OTHER INFORMATION
 ITEM
1 – LEGAL PROCEEDINGS
 
 Not
applicable
 
 ITEM 1A – RISK FACTORS
 
 In
addition to the other risk factors and information set forth in this
report, you should carefully consider the factors discussed in Part I, “Item 1A.
Risk Factors” in our Annual Report on Form 10-K for the year ended March 31,
2009, which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only
risks facing the Company. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition, operating results and/or cash
flows.
  ITEM 2
              -
      UNREGISTERED SALES OF EQUITY
SECURITIES
 
 None
 
 ITEM 3
              -
      DEFAULTS UPON SENIOR SECURITIES
  None
 
 ITEM
4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None
  ITME
      5
              -
      OTHER INFORMATION
  None
  -
18 -
  
 ITEM
6.
 Exhibit
              
              Description31.1
              
              Certification
      of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.32
              
              Certification
      of the Company’s Chief Executive Officer and Chief Financial Officer,
      pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
 
  -
19 -
  
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 AURASOURCE,
      INC.Date:
      August 13, 2009
              /s/ 
      PHILIP LIUName:
      Philip LiuTitle: Chief
      Executive OfficerDate:
      August 13, 2009
              /s/ 
      ERIC STOPPENHAGENName:
      Eric StoppenhagenTitle: Chief
      Financial Officer
 
 
 
   -
20 -
  EXHIBIT
INDEX
 
 Exhibit
              
              Description31.1
              
              Certification
      of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.32
              
              Certification
      of the Company’s Chief Executive Officer and Chief Financial Officer,
      pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.